Individual Investor

Institutional Investor

Common Sense Isn’t So Common Anymore

Jun 14, 2018

Got five minutes? The topic of this blog post is covered in our Fiduciary Five Podcast series hosted by Chuck Hammond of the 401(k) Study Group. The Fiduciary Five Podcast…your fiduciary questions, answered in about five minutes. To listen to the related podcast, click here.

When my brother and I were 16, we were given the opportunity to buy a 1963 GTO. We had the finances to buy the car and we were excited at the opportunity to get our first “muscle car.” At 16 years old, any transportation is a privilege, but that kind of ride would get us some great attention. Then our parents offered us some guidance. They enlightened us to the other costs associated to owning a car (tax, title, license, insurance, gas and future repairs) and how spending that money would impact our financing for college. Sadly, we never did buy the car, but I will share this life experience with my kids when the opportunity presents itself. Many in the financial industry would categorize this experience under financial literacy. I think of it more as the common sense we had not yet learned.

Many years later, my wife and I purchased a new vehicle for our growing family. I applied those earlier lessons and researched online the size of car we were looking for, safety ratings of the vehicles, pricing of the vehicles based on features, online loan calculators available through our bank and other financial institutes and searched for the lowest interest rates in real-time. The introduction of these online tools and services that allows us to incorporate cyber-technology into our decisions is called cyberliteracy. The internet has offered us online applications, tools, financial calculators and other resources that has become a new common sense for many that use them every day.

With each generation having different life experiences, guidance and traits, which set them apart from each other. What is common sense to one isn’t necessarily common sense to the other. At Unified Trust’s most recent Advisor Symposium, Kim Lear from Inlay Insights was a keynote speaker delivering a presentation called “Preparing for the Future– Building Relationships Across Generational Lines.” She offered great insight into each generation’s typical mindset regarding their traits and life stages. Based on my age, I bridge two generations, which allows me the opportunity to see multiple perspectives across the generational lines. She explained to the advisor attendees that it will be imperative for them to be a bridge across client generations so they can effectively communicate and guide as existing clients age and the new generation of family takes a more active role in family finances.

As a retirement plan advisor, it will be important to understand the plan’s participant demographics so you can help bridge the gap between financial and cyberliteracy. There are certain behavioral traits we know to be detrimental to retirement plan participants’ success. Some examples would be procrastination, inertia, choice overload, loss aversion and myopia, but there are others. If not accounted for, these can have a substantial negative impact on a participant’s retirement savings. Many of these behavioral traits can be influenced by an individual’s financial and cyberliteracy.

Advisors will need to assist plan sponsors in creating the right type of educational programs for their employee demographics. This may require a formal Education Policy Statement or Benefit Policy Statement for the plan. Education may need to be delivered in multiple communication methods (online, videos, paper, mobile, etc.). The retirement program will have to be easy for the plan participants to understand so they can start out on the path to succeed. Behavioral Economist and the Nobel Prize Winner Richard Thaler explains in his article “Shifting Our Retirement Savings Into Automatic” that the best way to accomplish increased savings is through smart plan automations and defaults. As an advisor, you will need to find out what is most important for the employee demographics and offer the appropriate balance in educating for both financial and cyberliteracy to create a new evolved common sense for employees.

At Unified Trust we work with advisors to help bridge the education gap by creating a Benefit Policy Statement for the plan which offers a more focused retirement solution for all plan participants. Unified Trust was an early adopter of smart defaults, automations and digital advice for employer sponsored retirement programs. As a discretionary trustee, we engineered the Unified Success Pathway which combines effective defaults with on-site services, online advice and managed portfolios. Plan sponsors can build on the Success Pathway foundation by delivering a personalized solution for each employee called the UnifiedPlan®. The UnifiedPlan Managed Account Solution makes it easy for plan participants by providing a highly personalized plan on each individual’s unique situation, current savings and assets and projected years until retirement. This approach defaults the participant onto the path that is most likely to give them the best outcome. Now that’s common sense if I’ve ever seen it!

Products and services offered by Unified Trust Company, N.A. are not insured by the FDIC, are not a deposit or other obligation of, or guaranteed by, Unified Trust Company, N.A., and are subject to investment risks, including possible loss of the principal amount invested.